A trust is one of the least understood tools available for estate planning, and in fact many people do not realize it is a tool available to them. Yet, in some cases, creating a trust can be a useful way to protect your property, and ensure your assets are passed down without interference from creditors. If you are planning your estate, you should consider whether a trust might be appropriate for you and your needs.
Put simply, a trust is a legal arrangement by which someone (known as the trustor or grantor) gives another person (known as a trustee) control of their money or property. The trustee watches over the property on behalf of the grantor and agrees to manage the property to the best of their ability. Depending on the terms of the trust agreement, the trustee will then watch over the money or property that has been given to them or disburse it to the grantor or a designated beneficiary, as the agreement demands.
There are two primary kinds of trusts used for estate planning. The first are known as testamentary trusts, which are created as part of a last will and testament. In a testamentary trust, part of the decedent’s estate is placed in a trust under the care of a trustee, which is typically (but not always) the executor of the estate. A testamentary trust is irrevocable, meaning its terms cannot normally be changed once it is created.
The second kind of trust used in estate planning is known as a living trust or inter vivos trust. A living trust is created while the testator is still alive, and unlike a testamentary trust, it is considered revocable, meaning its terms can be modified by the grantor. Assets can be moved into or out of the living trust, and its trustee and beneficiaries can be modified until its grantor becomes incapacitated or dies, at which point the property is disbursed to whoever is designated as a beneficiary.
Whether you use a living trust or testamentary trust, you retain three major benefits from putting your property in a trust. First and foremost, property held in a trust is considered non-probate property, meaning it can pass on to its intended recipients without involvement of the probate court. Second, any money or property in a trust is protected from taxes and creditors, which means much more of your estate will be passed on to your intended heirs, rather than getting taken to pay outstanding debts. Third, a trust can be used to manage money or assets on behalf of minor children, protecting their inheritances from family members that might want to use that money for their own ends.
However, there are downsides to using trusts in your estate plan. First, trusts can be expensive to maintain, requiring significant legal fees and court appearances to report on the state of the trust. Second, you need to be certain any trustee you appoint can be trusted, or otherwise they may abuse their position to steal from the trust. Additionally, if your trust winds up not having a trustee, either because the trustee you appointed refuses the position or because you failed to designate one in your will, the court will appoint a trustee, taking control out of the position out of your hands.
Despite these disadvantages, a trust can be an important and useful tool for estate planning. However, only by consulting with an attorney knowledgeable in estate planning can you learn if a testamentary trust or inter vivos trust is right for you.
If you are looking to plan your estate, you should consult with an attorney who is experienced in estate planning and other elder law issues. The elder law attorneys at David J. Lorber & Associates, PLLC will thoroughly analyze your estate and work with you to determine the best means of transferring your assets, minimizing taxes, and ensuring your needs are met. For comprehensive estate planning services in New York, call David J. Lorber & Associates, PLLC at (631) 750-0900 or contact us online to schedule a free consultation at our Setauket office.